Strategists Predict TSX to Reach 28,000 in 2025 as Interest Rates Drop
As we approach the final days of 2024, Canadian market strategists are projecting a promising future for the country's stock market in the coming year. The TSX (S&P/TSX Composite Index), which has performed strongly this year, is expected to continue its upward trajectory into 2025, with predictions that it could hit 28,000 points, signaling another year of significant growth.
The forecast comes at a time when the broader economic outlook is marked by uncertainty, especially due to concerns over potential trade disruptions under Donald Trump's administration. Despite these challenges, the TSX has been resilient, posting a solid 18% gain this year, its best performance since 2021. Rising corporate earnings, along with lower interest rates, are driving this optimism.
Philip Petursson, the chief investment strategist at IG Wealth Management, believes that Canadian stocks are currently more reasonably valued than their US counterparts, making them an attractive option for investors. He sees Canada as having a clear advantage over the US, especially in an environment where inflation and interest rates may remain higher in the US. According to Petursson, the Canadian market is poised for further growth, with a target of 28,000 points for the TSX in 2025.
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The Bank of Canada's decision to begin cutting interest rates in June has also provided a favorable backdrop for the stock market. With five rate cuts this year alone, the central bank has reduced the overnight rate to 3.25%, and analysts expect it to continue lowering rates, reaching 2.5% by mid-2025. This rate easing has fueled gains in key sectors such as technology and finance, with notable performers like Shopify seeing significant growth.
Brian Belski, strategist at BMO Capital Markets, has set an even higher target of 28,500 points for the TSX by the end of 2025, citing the likely expansion of valuations and increased flows into Canadian stocks as the year progresses. The expectations of a recovery in Canada's economy, coupled with lower borrowing costs, are providing optimism.
However, it's not all smooth sailing for Canada's stock market. The ongoing trade tensions with the US, particularly the looming risk of tariffs, could dampen economic growth and negatively impact certain sectors, such as telecom, which relies heavily on population growth. Additionally, Canada's recent economic contraction in November, as reported by Statistics Canada, highlights the vulnerability of the economy in the face of external pressures.
Despite these risks, strategists remain largely optimistic about the outlook for Canadian equities. The TSX benefits from its strong exposure to industries with significant US-dollar earnings, which are boosted by a weaker Canadian dollar. This offers some protection against potential trade conflicts or tariff threats.
As we step into the new year, investors will be closely watching the performance of the TSX and other key indicators to gauge whether this positive outlook will hold true in 2025. For now, it seems that Canada's stock market has the momentum and conditions to continue its upward climb, offering a promising landscape for investors heading into the new year.
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